Another Chart That Explains Inequality

April 20, 2015: The chart shows how between 1930-1970's only the bottom 90% saw their income rise. Since then, only the top 1% has had increase, dramatic increase. The entire analysis with article by Matt O'Brien that support the chart is found on the Washington Post website.

Lack of Access Promotes Inequality - Western Nebraska Report

Profitable farming in Western Nebraska, and I imagine in many other parts of the United States of America, requires access to resources (land, water, nearby roads et cetera) and significant amounts of capital (to purchase seed, fertilizers and pesticides, own and maintain expensive equipment and hire other individuals, with or without expensive equipment, to work the fields). To the outsider farming appears to be a risky speculative business. For the uninformed, inexperienced and foolish, profitable farming is a risky speculative business.

Big Ag aka Big Agriculture is a growing and ongoing success in the USA with the Big Ag methods exported abroad.

- Intensive Crop Farming

- Union of Concerned Scientists: Hidden Cost of Industrial Agriculture

- Industrial Livestock Production

Lack of Access Promotes Inequality:
As of August 2014, the price of land is at a record high. Uncertain growth of the USA economy with the peculiar on-going government accounting practices suggesting inflation is under control, tells savvy investors and farmer/ranchers that the ownership of land, large parcels of land, is a safe investment producing product that government(s) and corporations (and eventually consumers) will buy. Therefore there are three classes of farmer/ranchers here:

Large land owner operators, like my father-in-law Frank Svoboda, who have several circles of land with center pivot irrigation and/or many sections of dry land suitable for either crop production or grazing, 1 mile x 1 mile, section defined. These large land owner operators have access to the banks and vendors to secure easy terms for their large operation capital needs and often own their own land.

Middle class farmer/ranchers may own or rent a small parcel of land, such as a 1/2 section. These individuals often work several jobs: a little time spent working their own ground, much more time spent working the ground of large land owner operators or taking jobs in the cattle feed lots, newly constructed ethanol manufacturing facilities or nearby towns.

There are no low-income farmers in Western Nebraska.

However, there are low-income ranchers whose condition will never change as their agricultural practice is not respected nor supported by the profit takers. Rancher testifies to the need for Medicaid expansion : Politics
journalstar.com/.../rancher.../article_ee55130e-2879-...
Lincoln Journal Star
Dec 18, 2013 - "This is not just my personal story, it's western Nebraska's personal story," ... With a $10,100 adjusted gross income, she is too poor to qualify for ...

- Steve Bull, August 24, 2014

I am in Western Nebraska. I have two sections of dry land in agricultural production: one half section is organic and produces crops of millet, wheat, field peas and sunflowers, and the other half section is chemically supported "normal" practice and produces field peas, wheat and corn. Last year was a drought year. This year there has been rain and no hail on my crops.

The State of Inequality

The facts regarding the increasingly unequal distribution of income have been widely publicized, but they have not lost their ability to shock. Or to bring out deniers. Fortunately, the bipartisan Congressional Budget Office (CBO), has issued a major study, “Trends in the Distribution of Household Income Between 1979 and 2007,” October 2011, which makes the raw data indisputable.

The data compiled by the Congressional Budget Office are striking. Between 1979 and 2007, the incomes of the top 1 percent increased by 275 percent, for the rest of the top 20 percent they increased by 65 percent, for the middle 60 percent the increase was 40 percent and for the bottom 20 percent only 18 percent. The result of these three “rich get (much) richer” decades is that the share of income received by the top 1 percent of the population more than doubled from 8 percent to 17 percent, while the share of income received by the bottom 20 percent actually declined from 7 to 5 percent. The incomes received by the top 1 percent in 2007 were more than three times the total incomes of the bottom fifth of the population. And the income of the top 20 percent exceeded that of the remaining 80 percent of the population.

The data can be presented in various ways. In Chart one, average household income is shown for the top 1 percent of the U.S. population, and for each fifth ranked from the highest income to the lowest, for the period 1979-2007. 

Chart 1.

 

(click on chart for larger version)

What is striking is that the lion’s share of the increases in income has been garnered by the top 1 percent. Taking the top 20 percent as a whole, the chart shows significant gains, but for the remaining 80 percent of the population the gains have been very small.

Chart Two shows how this growth of incomes at the top of the income distribution has changed the shares of each group in the total. The top 1 percent have dramatically increased their share of total income, and the top 20 percent as a whole have also succeeded in achieving a modest increase, but all the remaining fifths, constituting 80 percent of the population, have suffered diminishing shares.

 Chart 2.

 

(click on chart for larger version)

 

Judging by all the talk of hardship and the need to tighten belts, you would think that the cause of this decline in income shares of the vast majority of Americans must be related to the impoverishment of the country as a whole, but this is not the case. Chart Three shows that the value added per worker has continued to rise steadily in each decade, especially since 1980. What has lagged is not productivity but pay. Workers are producing more but not earning more. Since the mid-1970s, average pay per worker has basically gone nowhere, i.e., it has kept up with inflation but no more than that.

Chart 3.

(click on chart for larger version)

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The 1% Economy

The American economy is suffering from a fundamental imbalance. This imbalance, simply stated, results from the inadequacy of the current level of wages – and the current level of employment – to support economic activity and investment.

Like any market economy, the American economy depends on consumption to support economic activity directly, and to support it indirectly by buying the output of goods and services that makes investments profitable.

The economy is not paying ordinary working Americans enough for them to be able to support consumption, in other words to buy the goods and services they produce. A resort has been made to borrowing – by means of consumer borrowing through mortgages and other loans, and government deficits to sustain spending.

Meanwhile, wealthy individuals – the “1%”, as Occupy Wall Street calls them – and corporations are awash in cash, with not enough places to invest it. In a desperate attempt to maintain the profitability of their investments, investors and corporations are searching for – and in the process creating – one financial bubble after another. When the bubbles burst, recessions will result.

In this blog, we argue for the necessity of a large shift of earning from wealthy individuals and corporations to ordinary working people. The simplest way to achieve this is by reversing some of the tax changes that have favored corporations and the rich.

Would this redistribution be a Robin Hood kind of theft from the rich? Is it morally right? The simple answer is:

The economy should be answerable to the people, rather than the other way round – we must reject the myth that the economy “belongs” in any absolute sense to the rich.

If the economy is not the property of the rich, to be manipulated for their benefit, what is it good for?

The economy should provide a framework within which people have the opportunity to fulfill their potential.

With this objective in mind, what are people entitled to expect of the economy? Surely, at least, it should pass the following four tests:

(1)   Does the economy achieve reasonably full employment with wages at or above the living wage level for those people who are able to work?

(2)   Does it provide support for those people who are unable to work because they are too young, too old, too sick, or are in school?          

(3)   Does it create a framework of financial stability within which people are able to plan their working lives, housing, retirement, etc.?

(4)   Does it encourage individuals to be inventive, creative and entrepreneurial?

In 2012, as highlighted by the emergence of Occupy Wall Street, it is clear that the economy must be given a failing grade on at least the first three of these tests. Why has it been underperforming so badly, and what can be done to rectify matters?

The increasingly unequal distribution of income that has emerged in the United States in the past three decades constitutes an imbalance in the economy that has become pervasive and fundamental. This booklet makes the case that an extremely unequal distribution of income is incompatible with a stable full-employment economy.

While a degree of inequality may be conducive to the fourth test – providing scope for the entrepreneurial spirit – extreme inequality has the opposite effect of undermining economic growth and stability.

This blog has been established to explain and elaborate the whys and hows of 1% economy. 

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